FreeBaGeL
Footballguy
Almost certainly #5.
I think it's as simple as TLRY is the popular weed trading vehicle right now. I doubt many are expecting it to be worth near what it is now by the time the merger happens.
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Stock Thread (18 Viewers)
- Thread starter St. Louis Bob
- Start date
I think it's as simple as TLRY is the popular weed trading vehicle right now. I doubt many are expecting it to be worth near what it is now by the time the merger happens.
cosjobs
Footballguy
Sand
Footballguy
My trading account has grown from ~4% to ~10% of everything this last year. Crazy growth. It's enough now to really swing the return percentages around to not be heavily correlated with the S&P. I will say that over the last six months, even with 30% bonds, overall I'm matching the S&P on return. That's pretty astounding and I'm super happy with that.
joker
Footballguy
Bob Sacamano
Footballguy
Bob Sacamano
Footballguy
General Malaise
Footballguy
Cobalt prices are heading higher. Unlike gold or silver which has Billions of dollars wagered in the derivative markets, there's next to nothing in the way of cobalt futures or options. So the metal gets priced 2x3 times a week by industry rags. It's moved to $23 this week and ticks higher everytime we get the report from Metal Pages or Metal Bulletine.you and me both.
So the metal moving higher matters. As does the recent shakeup to the board, adding 3 members of DRC origin. That matters.
And the real reason why I ever even mentioned it to begin with was the use of blockchain to prove ethically sourced material. That matters. That matters a lot with EV booming. With Apple getting into EV. Ethically sourced cobalt is really going to matter and blockchain - as Hooter will tell you - is the way to prove its ethical source.
HODL
Bob Sacamano
Footballguy
Honestly, the comments are probably better than the article. But sure...
Tilray/Aphria: The 30% Merger Arbitrage Is Tough To Play
Feb. 08, 2021 9:15 AM ETAPHATLRY40 Comments14 Likes
Summary
Since the merger was announced last December, Tilray shares have detached from the merger price and are trading at a ~30% premium.
Merger arbitrage is best played through a paired trade (long Aphria and short Tilray); market prices indicate borrowing costs of shorting Tilray is much higher than the ~30% merger discount.
We remain bullish on Aphria/Tilray due to their leadership in the global cannabis industry but one should avoid buying Aphria shares simply to take advantage of the merger arbitrage.
Since the merger between Aphria (APHA) and Tilray (TLRY) was announced on December 16, 2020, the two stocks have traded apart and resulted in a somewhat bizarre situation. Current share prices imply ~30% upside in Aphria shares if the transaction were to close tomorrow. However, we outlined below a few reasons why the arbitrage opportunity exists and why buying Aphria shares does not guarantee a 30% return in this case.
The Math
According to the deal that was announced which was structured as a reverse takeover of Aphria by Tilray, each Aphria share will receive 0.8381 shares of Tilray. Aphria shareholders will end up owning ~62% of the combined company. On the first day when the deal was announced on December 16, 2020, Aphria shares closed at $8.06 and Tilray shares jumped to $9.33 at closing, which implies that each Aphria share should be worth $7.82; interestingly Aphria shares were actually trading at a slight premium to the implied merger price at that time. However, fast forward to last Friday's closing, the slight premium in Aphria shares has turned into a ~30% discount to the implied merger price. Simply put, if you own one share of Aphria shares now and the deal closes tomorrow, assuming that Tilray share price remains unchanged after the deal closes, your Aphria stake would return ~30% instantly which is an attractive arbitrage opportunity. But why would there be such a blatant arbitrage trade available when both companies are liquid and well-known among investors?
Tilray Share Price (Feb 5, 2021)$25.72
Exchange Ratio0.8381
Implied Offer price for Aphria$21.56
Aphria Share Price (Feb 5, 2021)$16.67
Implied Upside to Aphria Shares29%
Typically the reasons why the target's share price trades at a discount to the implied offer price after a merger is announced revolve around deal uncertainties. For example, if the deal could face regulatory review or shareholder vote that might torpedo the transaction then the target would often trade at a discount until these uncertainties are resolved. Similarly, if the deal has no uncertainty and has a high likelihood of closing, then the target should trade at a very slight discount to the implied offer price simply because, in theory, no one would pay exactly the offer price or more. In this case, we think there are a few reasons why Aphria shares trade at discount:
Short Squeeze: Tilray had one of the most spectacular short squeezes within the cannabis in 2019 when its shares soared to an intraday high above $300 months after its IPO at $17/share. The stock remains one of the favorites among short-sellers and borrowing costs typically spike when Tilray shares rally; Tilray shares have gained more than 200% since the November election. The whole sector has been on fire since the election and the borrowing costs on Tilray shares are certainly very high. In January 2019 when the cannabis sector was rallying, the cost of shorting Tilray shares soared to above 900%. While we don't have data on the latest borrowing cost, we would expect it to be quite high given the massive rally in Tilray shares and the broader phenomena of short squeezes in stocks like GameStop and AMC.
The implication of high borrowing costs is that traders cannot easily take on the arbitrage opportunity to buy Aphria shares and short Tilray shares, in what's called a paired trade. Only in a paired trade could one achieve risk-free arbitrage by locking in the ~30% discount without taking market risks (there is also the risk that the deal would fail which is low in this case). If you do not short Tilray shares and simply acquire Aphria hoping to gain 30% when the deal closes, you are taking on price risks by being long Aphria shares. For example, if Aphria shares tank 50% before the deal closes, you would still lose money on the trade even if the merger discount was eliminated. Another way to lose money by holding a naked long position in Aphria is that the merger arbitrage could simply be eliminated by a decline in Tilray's share price without movement on the Aphria side i.e. Tilray shares are just overvalued.
Regulatory: we don't see this as a major concern for the market because the combined company would hold ~17% of the Canadian retail market which is not very high. There remain plenty of competitors and the merger is unlikely to result in higher prices for consumers.
(Source: Bloomberg)
How To Make Money
Based on the discussions above, the ~30% discount is not easy to take advantage of and the only way to profit from this discount is to create a hedged position that is long Aphria and short Tilray. Given the persistent and growing discount, we think the borrowing cost on Tilray is likely very high, certainly much higher than the arbitrage profits of ~30%, and that's why the market looks inefficient at the moment. Investors could also consider using options strategies to achieve the same outcome as a paired trade but that is not our area of expertise so we won't elaborate. We also discussed why investors should not be naive and buying Aphria shares alone does not guarantee a 30% return: if you acquire Aphria shares outright, the only guarantee is that you will receive 0.8381 shares of Tilray but the value of that stake is contingent on how Tilray shares will trade between now and closing. Tilray shares could simply be overvalued at the moment and a decline in Tilray shares could eliminate the merger discount without affecting Aphria shares.
In summary, we think the arbitrage opportunity is likely out of reach for most investors given the borrowing cost for shorting Tilray shares. Investors should not be tempted to acquire Aphria shares solely on the basis of the 30% discount implied by both stocks at the moment. Instead, our bullish call on both stocks is based on our conviction that Aphria and Tilray would form one of the leading global cannabis players. The U.S. cannabis sector represents the most attractive arena for investors and should take up the largest share of one's cannabis portfolio. However, Aphria and Tilray have valuable assets globally and their access to capital means they could enter the U.S. markets through acquisitions relatively easily once able to do so. Therefore, we recommend investors to hold onto their Aphria and Tilray shares due to their global exposure but avoid buying Aphria shares simply to take advantage of the merger discount due to reasons discussed herein.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Tilray/Aphria: The 30% Merger Arbitrage Is Tough To Play
Feb. 08, 2021 9:15 AM ETAPHATLRY40 Comments14 Likes
Summary
Since the merger was announced last December, Tilray shares have detached from the merger price and are trading at a ~30% premium.
Merger arbitrage is best played through a paired trade (long Aphria and short Tilray); market prices indicate borrowing costs of shorting Tilray is much higher than the ~30% merger discount.
We remain bullish on Aphria/Tilray due to their leadership in the global cannabis industry but one should avoid buying Aphria shares simply to take advantage of the merger arbitrage.
Since the merger between Aphria (APHA) and Tilray (TLRY) was announced on December 16, 2020, the two stocks have traded apart and resulted in a somewhat bizarre situation. Current share prices imply ~30% upside in Aphria shares if the transaction were to close tomorrow. However, we outlined below a few reasons why the arbitrage opportunity exists and why buying Aphria shares does not guarantee a 30% return in this case.
The Math
According to the deal that was announced which was structured as a reverse takeover of Aphria by Tilray, each Aphria share will receive 0.8381 shares of Tilray. Aphria shareholders will end up owning ~62% of the combined company. On the first day when the deal was announced on December 16, 2020, Aphria shares closed at $8.06 and Tilray shares jumped to $9.33 at closing, which implies that each Aphria share should be worth $7.82; interestingly Aphria shares were actually trading at a slight premium to the implied merger price at that time. However, fast forward to last Friday's closing, the slight premium in Aphria shares has turned into a ~30% discount to the implied merger price. Simply put, if you own one share of Aphria shares now and the deal closes tomorrow, assuming that Tilray share price remains unchanged after the deal closes, your Aphria stake would return ~30% instantly which is an attractive arbitrage opportunity. But why would there be such a blatant arbitrage trade available when both companies are liquid and well-known among investors?
Tilray Share Price (Feb 5, 2021)$25.72
Exchange Ratio0.8381
Implied Offer price for Aphria$21.56
Aphria Share Price (Feb 5, 2021)$16.67
Implied Upside to Aphria Shares29%
Typically the reasons why the target's share price trades at a discount to the implied offer price after a merger is announced revolve around deal uncertainties. For example, if the deal could face regulatory review or shareholder vote that might torpedo the transaction then the target would often trade at a discount until these uncertainties are resolved. Similarly, if the deal has no uncertainty and has a high likelihood of closing, then the target should trade at a very slight discount to the implied offer price simply because, in theory, no one would pay exactly the offer price or more. In this case, we think there are a few reasons why Aphria shares trade at discount:
Short Squeeze: Tilray had one of the most spectacular short squeezes within the cannabis in 2019 when its shares soared to an intraday high above $300 months after its IPO at $17/share. The stock remains one of the favorites among short-sellers and borrowing costs typically spike when Tilray shares rally; Tilray shares have gained more than 200% since the November election. The whole sector has been on fire since the election and the borrowing costs on Tilray shares are certainly very high. In January 2019 when the cannabis sector was rallying, the cost of shorting Tilray shares soared to above 900%. While we don't have data on the latest borrowing cost, we would expect it to be quite high given the massive rally in Tilray shares and the broader phenomena of short squeezes in stocks like GameStop and AMC.
The implication of high borrowing costs is that traders cannot easily take on the arbitrage opportunity to buy Aphria shares and short Tilray shares, in what's called a paired trade. Only in a paired trade could one achieve risk-free arbitrage by locking in the ~30% discount without taking market risks (there is also the risk that the deal would fail which is low in this case). If you do not short Tilray shares and simply acquire Aphria hoping to gain 30% when the deal closes, you are taking on price risks by being long Aphria shares. For example, if Aphria shares tank 50% before the deal closes, you would still lose money on the trade even if the merger discount was eliminated. Another way to lose money by holding a naked long position in Aphria is that the merger arbitrage could simply be eliminated by a decline in Tilray's share price without movement on the Aphria side i.e. Tilray shares are just overvalued.
Regulatory: we don't see this as a major concern for the market because the combined company would hold ~17% of the Canadian retail market which is not very high. There remain plenty of competitors and the merger is unlikely to result in higher prices for consumers.
(Source: Bloomberg)
How To Make Money
Based on the discussions above, the ~30% discount is not easy to take advantage of and the only way to profit from this discount is to create a hedged position that is long Aphria and short Tilray. Given the persistent and growing discount, we think the borrowing cost on Tilray is likely very high, certainly much higher than the arbitrage profits of ~30%, and that's why the market looks inefficient at the moment. Investors could also consider using options strategies to achieve the same outcome as a paired trade but that is not our area of expertise so we won't elaborate. We also discussed why investors should not be naive and buying Aphria shares alone does not guarantee a 30% return: if you acquire Aphria shares outright, the only guarantee is that you will receive 0.8381 shares of Tilray but the value of that stake is contingent on how Tilray shares will trade between now and closing. Tilray shares could simply be overvalued at the moment and a decline in Tilray shares could eliminate the merger discount without affecting Aphria shares.
In summary, we think the arbitrage opportunity is likely out of reach for most investors given the borrowing cost for shorting Tilray shares. Investors should not be tempted to acquire Aphria shares solely on the basis of the 30% discount implied by both stocks at the moment. Instead, our bullish call on both stocks is based on our conviction that Aphria and Tilray would form one of the leading global cannabis players. The U.S. cannabis sector represents the most attractive arena for investors and should take up the largest share of one's cannabis portfolio. However, Aphria and Tilray have valuable assets globally and their access to capital means they could enter the U.S. markets through acquisitions relatively easily once able to do so. Therefore, we recommend investors to hold onto their Aphria and Tilray shares due to their global exposure but avoid buying Aphria shares simply to take advantage of the merger discount due to reasons discussed herein.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
hooter311
Footballguy
Speaking of precious metals, how in the world are they going to have enough nickle to meet the valuation of the new trillion dollars in EV companies we all of a sudden have?
Any insight on nickle miners?
Eta:. I'll go even a step further....I want someone willing to go harvest it from an asteroid Armageddon style. Where's that stonk at?
Any insight on nickle miners?
Eta:. I'll go even a step further....I want someone willing to go harvest it from an asteroid Armageddon style. Where's that stonk at?
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Bob Sacamano
Footballguy
So, basically, assume the Tilray short squeeze ends before the merger.
The price of it comes down, more in line with the price of APHA, rather than the price of APHA rising to meet the price of Tilray.
How would you play that?
The price of it comes down, more in line with the price of APHA, rather than the price of APHA rising to meet the price of Tilray.
How would you play that?
Sand
Footballguy
kevzilla
Footballguy
FreeBaGeL
Footballguy
I don't think you want anything mined Armageddon style. They blew that rock up and died in the process. Sounds like a terrible business model.
hooter311
Footballguy
How about just the part where the guys from the strip club blast off into space and bring us back some battery juice?
General Malaise
Footballguy
Uh, yeah. Can it wait until morning? I'm going drinking.
But real quick: Nickel isn't s precious metal (not that that matters, but thank you for letting me be an arrogant #####) it's an industry metal and unlike cobalt - which is a byproduct metal of nickel and zinc and 65% located in the DRC - nickel can be mined in several garden spots around the world like Indonesia or Malaysia or, again, the DRC.
The other thing is leverage to nickel is tough to find - it's generally a metal that's a small fraction of a behemoth global metal miner so if it's 10% of what Glencore does and the price spikes, it isn't going to lift the company too much higher.
The old Cobalt27 company is a nickel company now. They might even be changing their name to Nickel28. But I trust their management team like I trust @Bob Sacamano, and @cosjobsto guard my liquor supply.
more tomorrow. You're on the right track. You ask a great question.
The Ref
Footballguy
I feel like we would have made good drinking buddies.
nickel is the metal most likely to have a significant price increase. It already costs more than $.05 in material to make a nickel. In a year or four it’s going to be a different material.
start hoarding nickels
Edit: they changed the nickel in 2015. So start hoarding old nickels.
Edit2: a 2014 nickel would cost .055 to make in material today.
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Angry Beavers
Footballguy
SNDL! Love this stock - got in at 1.10 thanks to this board.. sold at 1.25 to chase a dog.. got back in yesterday.. just wish I bought MOAR!!!
Thanks for the IRA advice gents - appreciate it.
Thanks for the IRA advice gents - appreciate it.
cosjobs
Footballguy
General Malaise
Footballguy
2Squirrels1Nut
Footballguy
Give me 5 bees for a quarter we'd say!
Bob Sacamano
Footballguy
jamny
Footballguy
Sand
Footballguy
Starlink was the flashiest one I saw. I bought this one because this is Softbank, which is deep pockets and a big name. I'm hoping (these are all a crapshoot) that this means they'll land a pretty big fish. We'll see.
jamny
Footballguy
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FreeBaGeL
Footballguy
It's only been open for 2 months. Do any of them ever close that fast? I always thought it took closer to a year to find someone but I haven't been paying that close of attention.
ETA: Just took a quick look and it looks like some of them do find a company that fast (IPOE recently, for instance).
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The General
Footballguy
McBokonon
Footballguy
There's definitely potential for a swing here, saw a couple fintwit guys who are usually pretty good talking this up. Has all the markings. You can still buy after hours if you want, haven't missed out.
jamny
Footballguy
It looks like it can go either way so I'm willing to wait another day. The heavy volume today was a concern.
McBokonon
Footballguy
The volume is usually what makes people jump in but I am NOT a technical trader by any stretch. I found some room in my traditional, I'm in at $8.52 for enough to make it count but not enough for it to hurt.
Capella
Footballguy
McBokonon
Footballguy
But Good God these cars are hideous looking.
Though it looks like it's down to Nashville and here in Phoenix for their next plant.
caustic
Footballguy
I had been eyeing SOLO’s chart for weeks and finally opened a position last week in the $8.30s. It immediately popped 16% the next day and I stupidly didn’t take any profits expecting a move to $10+.
Over the next few days it bled and bled until I got stopped out at my cost basis yesterday. Then it immediately started a reversal so I got *back in* at $8.75. It broke resistance at $9 and I thought this was finally its big move! Then today happened and now I’m underwater. So right now my thoughts on SOLO are, “#### that stock.”
McBokonon
Footballguy
Bob Sacamano
Footballguy
jamny
Footballguy
lol...I am looking at a longer hold.
A little hesitant but that Nov. high looks within reach if it turns the corner in the next few days.
Bob Sacamano
Footballguy
hooter311
Footballguy
Only been to Nashville once, and I had to get hepatitis shots at the hospital after I bit a homeless guy that was chasing me.
It was a long time ago...
April 2017.
2Squirrels1Nut
Footballguy
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